On January 1st of this year a program silently went into effect that could impact millions of business owners throughout the United States. The program, Corporate Transparency Act (CTA), is based off of a statute enacted through a defense appropriations bill passed in 2021 and the purpose of the law is to make many small business owners register their business entities and ownership structures with the United States Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”). This is not related to the annual filings that business owners across the southeast U.S. do on an annual basis with their respective Secretary of States’ offices. This new program is aimed at preventing tax fraud and money laundering through the use of “shell companies.” Shell companies are often described as businesses with little to no assets and unknown ownership interests which makes them an ideal way to hide the flow of money through the entity. The CTA, or sometimes referred to as Beneficial Ownership Interest reporting, requires that most small, registered business entities (Limited Liability Companies, Subchapter S Corporations, C Corporations, Limited Partnerships, Limited Liability Partnerships, etc.) disclose to FinCEN any owners that control more than 25% of the entity and anyone that exercises substantial control over the entity such as corporate officers or managers. There is no exemption for agricultural business entities.
For existing entities, owners have until the end of 2024 to submit the report through FinCEN’s online portal or they may be subject to monetary penalties (up to $500 per day for failure to report after the first of the year) or criminal penalties (of up to $10,000 in fines and 2 years imprisonment.) Information about the new reporting requirements is slowly being disseminated; however, another wrinkle has appeared. On March 1, 2024, a federal trial court in Alabama ruled in a motion for summary judgment that the CTA was unconstitutional because “it exceeds the Constitution’s limits on the legislative branch.” This ruling currently only applies to the plaintiff (the National Small Business Association) and not to the country as a whole. This is likely to be the beginning of legal proceedings across the country on the issue. Still, in the meantime, small, state-registered business owners across the country need to be aware of their current reporting requirements.
Rumley, Rusty. “The Corporate Transparency Act and Your (Potential) Duty to Register Your Business.” Southern Ag Today 4(10.5). March 8, 2024. Permalink
